The Securities and Exchange Board of India (Sebi) on Wednesday brought out regulations on the issue and listing of debt securities by municipalities.

According to the regulations, a municipality looking to issue debt should not have a negative net worth in the three immediately preceding financial years and the issuer should not have defaulted in repayment of debt securities or loans obtained from banks or financial institutions, during the last three hundred and sixty five days.

The regulation also states that the corporate municipal entity, its promoter, group company or directors should not have been named in the list of the wilful defaulters published by the Reserve Bank of India or should not have defaulted on payment of interest or repayment of principal amount in respect of debt instruments issued by it to the public. In case of public issue of debt, the regulation says the revenue bonds intended to be issued shall have a minimum investment rating and it should have a minimum tenure of three years or such period as specified by the board from time to time. The maximum tenure should not exceed thirty years, it said.

“The issuer may decide the amount of minimum subscription which it seeks to raise by issue of debt securities and disclose the same in the offer document provided such minimum subscription limit shall not be less than seventy five per cent of the issue size,” Sebi said. It added that in the event of non-receipt of minimum subscription all application money received in the public issue shall be refunded forthwith to the applicants, within twelve days from the date of the closure of the issue.

In regard to listing of the debt securities on private placement basis, the regulation states that the minimum subscription amount per investor should not be less than R25 lakh or such amount as may be specified by board from time to time.

Sebi says…
* A municipality looking to issue debt should not have a negative net worth in past three preceding financial years
* Bonds intended to be issued shall have a minimum investment rating and should have a minimum tenure of 3 years
* In the event of non-receipt of minimum subscription all application money shall be refunded within 12 days